Sonoma Housing Bubble

Tuesday, February 28, 2006

The Cat is Out of the Bag.

US Housing Market Headed for the Deep Freeze"After five adrenaline-pumping years of real estate sales, 2006 is already fulfilling predictions of a weaker market."

"January should have been a hot month to sell new homes. Record warmth for much of the country kept construction crews busy and was expected to entice prospective buyers to come out to shop, economists said. Instead, America's housing market went into the deep freeze. And that has some worried there may be trouble down the road for several sectors of the economy."

"Though many analysts say the market is undergoing the expected cooling off after five years of red-hot sales, some are worried about the slowdown's dual effect, first on construction and then on consumption. Consumers who have seen the price of their houses double in the last few years have used equity built up in the homes to help power the country's economic engine."

"If home prices flatten out--and we are expecting that--it has a slowing effect on the economy," said Ed McKelvey, a senior economist at Goldman Sachs in New York.

The Commerce Department said sales of new homes dropped 5 percent in January to their slowest pace in a year while the number of new homes on the market hit a record high.

"A record number of new homes, 528,000, are sitting waiting for buyers. At the current sales pace it would take 5.2 months to sell that inventory--the longest time since 1996."

"Inventories of existing homes climbed in January by 2.4 percent, leaving 2.91 million homes available for sale at the end of the month. That equates to 5.3 months' supply at the current sales pace, the highest since August 1998."

"The figures were the just the latest in a string of data pointing to a cooling in the U.S. housing market after a five-year rally that shattered sales and construction records, and sent prices soaring more than 55 percent across the country."

"Builders are seeing more orders canceled. Meanwhile, the number of homeowners who are late paying their mortgages has been creeping up. For subprime borrowers — those with impaired credit who carry higher-interest loans — the number of delinquent loans has jumped to nearly 10%."

"Horsham, Pa.-based Toll Brothers Inc., one of the nation's biggest home builders, said last week that its first quarter-end backlog rose 22 percent and signed contracts declined 21 percent compared with the company's record first-quarter results last year."

"One in five builders said they are seeing more cancellations of new-home orders than they did six months ago, according to the National Association of Home Builders, with 4% saying the problem is significant."

"To entice home shoppers, many builders are offering free TVs, swimming pools, landscaping and other incentives."

“The inventory of homes for sale could swell as new homes nearing completion come on the market, and as home owners who believe mortgage rates will head higher rush to list houses before financing tightens, said Bob Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.”

"The backlog of unsold homes will put real downward pressure on prices over the next few months," despite a January rebound, raising mortgage rates and depressing future sales, said Ian Shepherdson, chief U.S. economist at High Frequency Economics."

“‘We have now seen three months in a row where sales have dropped more than expected,’ said Robert Kleinhenz, an economist with CAR. ‘At least some home buyers have adopted a wait-and-see attitude.’”

“‘Mortgage brokers are not as busy, real estate brokers are not as busy,’ said Kevin Clay of a San Carlos-based real estate and financial services firm. ‘There seems to be a decrease in activity overall.’”

"The housing market is certainly shifting away from a record-breaking pace," said Lawrence Yun, senior economist for the Realtors."

"The data showing a slower-than-expected sales pace contributed to a drop in U.S. stocks (^DJI - news) and the dollar on Tuesday, while Treasury bond prices rose. Shares of housing-related stocks also traded lower."

"According to the Realtors, home sales were easing in the priciest markets where an increase in mortgage rates will have the biggest effect on buying power. Sales dropped 10 percent in the Northeast, 7.7 percent in the Midwest and 3.5 percent in the West."

"January was not a good month for home sales in Sacramento or the state, according to a report released Tuesday by the California Association of Realtors. In Sacramento, 31 percent fewer homes were sold in January than in December, a mark that was also 32.4 percent below January 2005."

"CAR vice president and chief economist Leslie Appleton-Young said in a statement. "The number of homes for sale has risen to a six-month supply, which will translate into a slower rate of price appreciation than we experienced in 2005."

"Fran Floyd took her Houston townhome off the market Saturday after nearly six months — even though she was willing to sell it for $3,400 less than she paid in 2002."

"It's just sad," said Floyd, 81. "I've got to sell. I don't know what I'm going to do. What I'm thinking about and praying about is renting it for a year, hoping the real estate market gets better."

"We've just got tons of inventory," and prices are coming down in Grand Rapids, Mich., said Pat Vredevoogd of AJS Realty.

"The writing seems to be on the wall at this point," said Chris Low, chief economist at FTN Financial in New York. "Prices are .. falling. Meanwhile, the supply continues to rise."

214 listings for Sonoma25 houses sold last month53 with price reductions

Also in the news another REIT hints it may have some trouble brewing...

“Saxon Capital, Inc., a residential mortgage lending and servicing real estate investment trust (REIT), today announced it is delaying its 2005 fourth quarter and year end earnings press release and related conference call. The Company expects to report its complete operating results on or before March 31, 2006.”

“Management is reviewing the..derivative transactions used in its hedging strategy to manage interest rate risks from 2001 to the third quarter of 2005. If the Company determines that it did not meet the requirements of SFAS 133, a restatement of results from 2001 to the third quarter of 2005 may be required. ‘We are disappointed in this delay, but need more time to review these complex accounting issues before reporting our results,’ said Michael Sawyer, CEO of Saxon. Robert Eastep, CFO of Saxon said, ‘In light of recent scrutiny as to the application of hedge accounting, we are reviewing our accounting treatment of our derivative transactions related to our hedging strategy to ensure that our financial statements adhere to SFAS 133.”

“In the wake of the prime lending sector’s refinance contraction, the nonprime sector has picked up and become more mainstream, accounting for 28% of total loan originations, according to a panel member at the MBA Expo in Phoenix. Michael Drawdy, senior vice president at Countrywide Financial Corp., said half of subprime ARMs will be due in the summer and over the next 14 months. ‘There will be some people who can’t pay for an ARM change,’ Mr. Drawdy said.”

“‘That is why you must make sure there is a system in place for collections, to make sure borrowers know their options.’ Panelists talked about repayment plans and ARM modifications aimed at helping borrowers stay in their homes. Over the next 12-24 months, there is a potential for severe delinquencies, they said.”

"The Mortgage Bankers Association, which tracks and reports on a number of mortgage statistics recently, and quietly, changed much of its website content to a membership only format. Among other things, gone is the historical data that used to permit easy and free trending of mortgage application data."

"Is it a coincidence that this move comes now? If it is, it’s a really convenient one. One reason for this opinion is that mortgage applications have fallen for two straight quarters in a row here in the northeast, and are on track to fall even further (even though the news might make you think otherwise). By selectively promoting weekly variations in mortgage application data, you can get the impression that the market has started to recover from it downward spiral, or is even trending upwards, when it is not. Of course, selective promotion is hard to do when you can get statistically significant data samples, which requires the historical data they are no longer providing."

"The second reason that this change comes at an interesting time is that, as other blogs have pointed out, there are growing concerns of a slowdown inside the mortgage banking industry. In fact, in developments that are not getting nearly enough press, companies such as Countrywide and Wakefield are talking about selling mortgage banking assets and laying people off. These are not things companies do when they see a growing market. In that context, it appears that the Mortgage Bankers Association may be plotting a new revenue model for use in as the market slows. A move like this wouldn’t be without precedent either, as many websites went to a membership format when advertising (their main revenue driver) revenue dried up after to dot.com collapse."

"Employment peaked in Sonoma County in 2001 at the end of the tech boom when the county had 196,700 payroll jobs. By 2003, the economic downturn had wiped out 7,600 of those jobs, based on average annual employment. Through 2005, only 2,400 had returned."

"The count of jobs is important as a key gauge of the economic health of Sonoma County, and the update each year with the January report is watched closely as the best measure of county employment."

"Throughout much of 2005, monthly reports suggested Sonoma County added about 1,000 jobs last year over 2004. But economists suspect that may be revised downward Friday, based on an update done by U.S. labor analysts every year to improve the accuracy of their numbers."

"The revision could show that the county has fewer payroll jobs than the 191,500 reported for 2005. If so, it would mean there was very little job creation in Sonoma County last year.A downward revision this week would reveal an even weaker job recovery than has been acknowledged."

"Some companies are hiring. Fred Coleman, assistant to the human resources manager at American Home Shield in Santa Rosa is adding up to 16 new customer service representatives a month at its West Coast headquarters in Santa Rosa, with wages starting at $13 an hour, Coleman said."

These people take calls from customers all over the United States and send out technicians to homes to make repairs."When call volume increases, we hire accordingly," Coleman said. "We just want to make sure we meet our service demand."

"American Home Shield has about 230 employees in Santa Rosa, including 70 or 80 customer service representatives, Coleman said."

How much house do you think $13 per hour can buy?Anyone feeling the pinch of rising interest rates? American Home Shield in Santa Rosa is looking for customer service reps.

Don't miss the Experts sounding off on what's to come for the Housing Bubble.

"Business Week did an interview with some housing industry professionals. “I caught up with three housing heavyweights, CEO Angelo Mozilo of mortgage lender Countrywide Financial, CEO Bruce Karatz of KB Home, and real estate bear Professor Bob Shiller of Yale University, and asked how worried we should be.”

MOZILO: The market has turned. The psychology of the buyers for single-family homes has clearly changed. We are seeing it from the flow of loan applications.

“SHILLER: The real question is: Will it be a soft landing, or will prices come down substantially? It’s hard to say because this is the biggest housing boom that this nation has ever seen, so we are in uncharted territory. I worry about a big fall because prices today are being supported by a speculative fever.”

“How severe are the price declines you are expecting?“SHILLER: In Los Angeles in the last cycle, prices peaked in 1989 and bottomed out in 1997. In that interval, L.A. lost 40% of its real value. I can see that happening there again or in any of the cities that have had tremendous price increases, and there are quite a number of them in this country. I think a pullback of as much as 40% is plausible in many places.”

Credible Realtor, Oxymoron or Not? Talk Among Yourselves...

(snippet reposted from Patrick's place0-please head over there to discuss)

(Randy H's observations about "Realtor Pete" who appeared recently in an article by the Contra Costa Times handing out advice that appears less than solid...)

"Now, here’s a guy with a Liberal Arts 2-year “business” degree who’s managed to get a real estate broker’s license. However, he’s handing out public (and likely private) personal financial advice. He repeatedly equates owning a home to investing. As such, he’s putting himself in the role of a personal wealth manager, only without all the rigorous certifications, licenses, and education one expects of such professionals."

"More broadly, Realtors(tm) are often responsible for providing advice to people which will ultimately affect the single largest factor of their wealth. When Realtors(tm) make statements like it only goes up, it’s always a good time to buy, hurry up and beat the rush or be forever left out are they ethically executing the implied obligations the public has bestowed upon them? ""When they work with hand-selected mortgage brokers to squeeze every last penny of leverage out of a homebuyer are they crossing the line? "Some Additional Questions Randy H. would like you to think about...* "Are Realtor(tm)/Broker credentials worthy of any respect in the world of rigorous/tightening certifications in most other fields?"

* "Is it just me, or does there appear to be a pretty strong inverse correlation between quality of education (the Junior College Liberal Arts “business” type versus various BS, MS, MBA, MFE types found in the rigorous certification population) and Realtors(tm)?"It is not just you Randy...

High Priced Housing, Slowing Sales, People Moving? Oh... was this a Secret?

"Sales of new single-family homes declined to a 1.233 million unit annual pace from an upwardly revised 1.298 million unit rate in December, the Commerce Department said."

"The report illustrates the fact that housing is not defying gravity and is not likely to do so this year," said Anthony Chan, chief economist at JPMorgan Private Client Services. "We're going to see chipping away of housing."

"Sales of new U.S. homes fell 5 percent in January to their slowest pace in a year while the number of homes on the market hit a record high."

"The number of new homes available for sale at the end of January rose to a record 528,000. At the current sales pace, that represented 5.2 months' supply -- the largest inventory since November 1996, the government data showed."

"The U.S. housing market has begun to show signs of cooling after a five-year rally that shattered sales and construction records, and sent prices soaring more than 50 percent on average nationwide."

"Home prices, however, have been more resilient, and economists chalk that up to stubborn sellers trying to cash out at the market's highs."

Meanwhile... in the Bay Area...

"The Bay Area Council's annual poll found that concerns about housing ranked as the region's second-most-vexing problem, behind transportation woes. "

"Two out of five residents of the nine-county region have given serious thought to moving away -- mostly because of high housing costs, according to a survey released today by a business and public policy group. "

"Even with some recent cooling in the local housing market, the price for a middle-of-the-road single-family home hovers around $628,000, or about triple the national average. That means many families with two income-earners are having a hard time managing. "

"In 1996, as the real estate market began to recover from the early 1990s recession, only 1 percent of respondents cited housing as a big concern."

"The annual survey, which takes the public's temperature on a range of issues, echoes similar findings by the Public Policy Institute of California, which in 2004 found that exorbitant home prices were forcing 31 percent of those ages 18 to 31 to ponder moving away from the region or out of the state."

" There's a ripple effect as people leapfrog from the Bay Area to the interior parts (of California)," said Rob Wiener, executive director of the California Coalition for Rural Housing. "As housing becomes less affordable, people who earn wages in those communities have to move farther out as well." Some of them don't stop at the state line."

"Such sentiments worry Wunderman, whose group represents many companies that are struggling to recruit workers to the high-cost Bay Area. At the same time, Wunderman and others say Northern California is increasingly divided between the wealthy and not-so-wealthy -- particularly teachers, firefighters and midlevel managers who are priced out of the market or who must endure long commutes to far-flung suburbs. "

Survey Questions:

"Question: If you have seriously considered moving out of the Bay Area, how much of a factor is the high cost of housing in your considerations about moving -- a major factor, a minor factor or not a factor?"

Major factor 70%Minor factor 15%Not a factor 15%

"Question: Which of the following two ways do you favor more to address the shortage of housing in the Bay Area -- building more new homes and apartments on vacant lots or underused spaces within existing Bay Area communities; or building more homes on land outside existing Bay Area communities?"

Houses for Sale are at record numbers, and the length of time on the market has tripled and buyers have dwindled. The mortgage industry is already feeling the pain and cutting their workforce as the demand for mortgages has nosedived...

"A major transition is underway in the U.S. mortgage lending industry, with consolidations and lay-offs at the forefront as companies try to deal with waning demand for home loans.""VOLUME IS EBBINGThe U.S. housing market surged for five years, shattering sales and construction records and sending home prices up more than 55 percent on average nationwide."

"But now the market has taken on a "survival-of-the-fittest" atmosphere, said Celia Chen, director of housing economics at Moody's Economy.com, a consulting firm."

Washington Mutual Inc. said it plans to close 10 home-loan support offices around the country and lay off 2,500 employees as the Seattle-based consumer bank and mortgage company continues a corporatewide effort to cut costs.

"Countrywide Financial Corp. (NYSE:CFC - news), the largest U.S. mortgage lender, recently announced it plans lay-offs for sometime this year, partly in response to lower profits on sales of mortgages."

"On its fourth-quarter earnings conference call in late January, the company's chief executive, Angelo Mozilo, said intense competition should force some smaller lenders out of the market."

"Employment in the real estate and mortgage industry peaked at 504,000 in October of last year but fell to 501,000 in December, according the Bureau of Labor Statistics."

"That is a noteworthy shift, given that the sector has been gaining jobs over the past five years. Employment stood at 283,000 in March of 2001.""Waterfield Mortgage Co. recently announced that it will sell its mortgage banking business."

"Irwin Financial Corp. (NYSE:IFC - news) said last month it hired JPMorgan (NYSE:JPM - news) to look at selling its conventional first mortgage unit, Irwin Mortgage.""They just couldn't get the revenue per loan that the big guys were getting," he said. Even the larger firms are poised for a downturn."There are some very important signals emerging in that we have seen some pretty good companies go on the block for sale or have been sold recently, which is a clear sign that consolidation is seriously underway," said Douglas Duncan, chief economist at the Mortgage Bankers Association, an industry trade group."According to Duncan, lenders have been holding "slowdown" meetings with their employees, a move he said historically coincides with a turn in employment. Duncan said developments at two mid-sized "good performing" companies may hint to a wider trend.""Mortgage rates are expected to continue ratcheting upward from their historic lows, and that will limit lending and refinancing activity, putting more pressure on firms to find new efficiencies, said Duncan.""Mortgage lending is an opportunistic business and when business declines, the instinct is to consolidate to become more efficient, and that is what we are seeing," said Chen."This shift is expected to pick up steam in 2006 if the housing market, as widely expected, cools off from its record-breaking five-year run."

You're Not All That After All

"After totaling up both sides of the ledger, the median net worth of American households rose just 1.5 percent over the three years measured, to $93,100, according to the Fed's report, which is compiled every three years to provide a portrait of family finances. ""The only weaker gain in wealth recorded by the Fed was in its first such survey, in 1989-92, when median household net worth dropped 5.2 percent during a period that included the recession of 1990-91." "U.S. families' wealth stagnated during the economy's recession and recovery from 2001 through 2004, as lackluster wage growth, sagging stock prices and rising debt levels offset the gains from higher home values, the Federal Reserve reported Thursday in its latest Survey of Consumer Finances." "Americans may feel much richer because of soaring home prices, but they're not. Wealth, or net worth, measures the value of a household's assets minus its debts - such as mortgages, car loans, student loans and credit card balances. And debt climbed steadily during the survey period, as the Fed slashed interest rates to stimulate borrowing and spending in rocky economic times." ``Home appreciation was offset by lousy wage growth and debt accumulation,'' said Jared Bernstein, senior economist at the Economic Policy Institute, a think tank focused on labor issues."

"Median family incomes rose just 1.6 percent from 2001 through 2004, to $43,200, the report said. That marked the weakest results since a 6.9 percent drop in the 1989-92 period.""While surging home values have supported consumer spending in recent years, analysts worry about the economic impact if, as expected, the home price surge begins to slow this year." "The Fed survey found that debts as a percent of total assets rose to 15 percent in 2004, up from 12.1 percent in 2001. Mortgages to finance home purchases were by far the biggest share of total debt at 75.2 percent in 2004, unchanged from the 2001 level."

"There was concern that families may start to feel even more squeezed as the cost of financing their debts increases along with rising interest rates." "Families spent 14.4 percent of their incomes on debt service in 2004, up from 12.9 percent in 2001. And the borrowing has only accelerated since 2004. Total household debt grew to a record $11.4 trillion in last year's third quarter, which ended Sept. 30, shooting up at the fastest rate since 1985, according to a separate Fed report."

A Prick in the Bubble

"Home builders are growing concerned about an increasing number of cancelled new home orders, which experts say could be a sign of an underlying weakness in the recent run in home prices."

"Specifically, the cancelled orders could be the latest warning sign that buyers who were turning to real estate as an investment, rather than for their own housing needs, are shifting out of real estate. And that could mean that in many hot markets, the air is about to come out of over-inflated real home prices overall.""A survey recently conducted by the National Association of Home Builders of its members found one in 5 reporting more cancellations than six months ago.""Toll Brothers warned that it is seeing investors bail on some markets, and supply now greatly exceeding demand in some cases. Besides the increased cancellations, new signed contracts fell 21 percent compared to a year earlier."

"When you start to see cancellations, you really get worried," said David Seiders, chief economist for the trade group."Typically, a downturn in a local economy -- particularly its job market -- can cause a drop in real estate prices and an increase in home order cancellations. But the trade group's survey found only 15 percent citing job losses by buyers as a cause for the cancellations." The survey, which allowed the builders to cite more than one cause for cancellations, found:

45 percent saying it was due to a buyer's inability to sell their existing home

1/3rd citing the buyers not being able to qualify for financing

15% due to job loss

"Seiders and others say a big concern is a factor not cited on the survey, the fear that cancellations are being driven by real estate investors who were ordering new homes with the intention of selling them quickly in a hot real estate market."

"Experts believe that the home buyer intending to live in a home is reluctant to cancel an order, even if the market seems to have softened. But an investor-buyer who more closely follows the local real estate market is more likely to cancel an order, even if they lose some deposit money, if they believe that the local market prices have fallen enough that walking away is more cost effective than buying and selling the home."

"The flight of investor-buyers from the housing market and the increased cancellations could therefore push real estate prices lower in different markets."

"Toll Brothers Chairman and CEO Robert Toll said the company's cancellation rate came to 8.8 percent of orders in the most recent quarter, up from a historic level of only 5 to 6 percent."

"At 8.8 percent we hope it's plateaued now," he said in response to a question during the company's analyst call."

"Speculative demand has ceased and speculators are now putting their homes back on the market. The result has been more supply than demand in some regions," said the company's earnings statement. "Markets such which are sound economically and showing healthy job growth, will need to work through their excess supply before the imbalance once again tips in our favor."

I have a few questions... if there simply is not enough housing supply to meet the demand as we keep hearing from people in and associated with the Real Estate and building industry... then how could there be "excess supply"?

Next, we also hear "they aren't making more land" & "they can't build enough houses to meet the demand for the population"

...again, if these things are truly factors in why housing prices have ballooned... well, why are there so many listings for sale? Why are they staying on the market longer? If we can't build enough houses to meet the demand, why cancel any house orders?

If what we keep hearing is true, then there should be no increase in house for sale inventory.

There should be no increase in the time it takes for a property to sell.

There should be no cancellations of new house orders because according to the Real Estate & Building experts enough houses can't be built to meet demand.

Take This Job and Shove it? (Sonoma County's Job Lost & Found)

In studies of the Sonoma County economy, the constant is change:

"The job base of the North Bay – and Sonoma County in particular – is undergoing profound change. . . . The big employers the region has depended upon to provide good-paying jobs for the last half-a-century are shrinking and restructuring as they face enormous global competitive pressures. And the region is not generating enough new jobs, or the kinds of new jobs, to replace those leaving."

Brad BollingerNorth Bay Business Journal, September 19, 2005

"The majority of new jobs pay less than the average wage. . . . The gap between high- and low-paying jobs is widening. In Sonoma County, the unemployment rate was 4.4 percent in August, essentially unchanged for three years as companies continued to be cautious about hiring or chose to expand outside the county."

The Press Democrat, September 25, 2005

In regard to wages, Sonoma County mirrors larger economies:

"Similar conditions exist throughout much of California and the nation. Economic growth, while robust in terms of both the nation’s gross domestic product and companies’ pre-tax earnings, has barely shown up in the U.S. job market. About 2 percent fewer working age adults are working today than in the first half of 2001. The soft labor market does not give a lot of incentives to employers to raise wages to attract workers."

• The number of jobs in the county is still 3.3 percent, or 6,500 jobs, below 2001.

• In Sonoma County, wages are down 2.4 percent from 2003, adjusted for inflation, for thelowest fourth of workers.

• Wages are up 6.2 percent for workers in the top fourth of the wage scale.

• Fifty-eight percent of new jobs between 2003 and 2005 paid below the average wage.

• …jobs and wages have languished so long that no one is sure when a recovery will come,and trouble spots on the horizon are causing economists to caution the job market may not improve soon."

The Press Democrat, September 25, 2005

"It is estimated that 60 per cent of the new jobs added between 2001 and 2003 were lower-paying service jobs that are below the county’s average wage of $40,000 per year. That shift in the employment picture, like the global shift, also raises questions about the direction of work-force development and education."

Carl Wong, Sonoma County Superintendent of Schools, writing in The Press Democrat

Sonoma County’s labor force was approximately 261,400 in 2005

Sonoma County's Top Job Gains, 2003-2005

Laborers/freight, stock +890Wage: $22,400

Bookkeeping, accounting +540Wage: $37,500

Recreation workers +460Wage: $22,900

Self-enrichment teachers +450Wage: $31,400

Elementary school teacher +430Wage: $56,100

Counter attendants/coffee shop +420Wage: $17,300

Farmworkers +420Wage: $20,600

Food prep. workers +400Wage: $20,100

Wait persons +320Wage: $17,300

Executive secretaries +310Wage: $41,900

Average wage: $28,750

Top Job Losses

Secretaries -960 Wage: $32,700(except legal, medical, executive)

Carpenters -600Wage: $49,000

Personal/Home care aids -590Wage: $23,200

Cashiers -520Wage: $22,700

Sales related workers -470Wage: $35,700

Dental assistants -370Wage: $43,500

Managers -360Wage: $92,300

General/ops mngrs. -340Wage: $104,500

Medical Assistants -320Wage: $30,600

Admin Svcs. Mngrs. -300Wage: $61,200

Average wage: $51,411

The Press Democrat, September 25, 2005

If we look at the jobs listed in the previous chart that show gains in employment and compare their annual incomes to the cost of living in Sonoma County, we find problems for many workers in the lower paying—but growing--occupations.

• From 2001 to 2005, the number of 30- to 39-year-olds in the County dropped by nearly13 percent (includes all races, with whites showing the greatest loss in numbers at 23 percent)

• Census trends show that 24- to 29-year-olds are also leaving • Latinos, who overall show steady population growth, are also leaving (The loss ofLatinos in the 30 – 39 age group is offset by an overall high birth rate)

• In Sonoma County kindergartens, 33% of the students are learning English as a secondlanguage

• By 2020, in Sonoma County, the population 40 – 59 will decline 6.5%; population 60 –79 will increase 96.7%; population 80+ will increase 54.1%

Thursday, February 23, 2006

No Direction for Sonoma County Economy

Last year basically came out a wash -- there were no significant job gains, wages climbed at a rate barely higher than inflation, and retail sales were flat, according to the SSU economic study."It's almost like last year was a complete write-off," Eyler said. "We're right back where we were last January." And economists are mostly forecasting more of the same in 2006.

In fact, this will be the third year that Eyler and other economists have predicted marginal growth year over year, suggesting the county remains in a holding pattern until one industry takes flight. It's getting to be a little frustrating, economists said.Economist Doug Henton said, today's economy, is led by three clusters: 1. the Sonoma "experience," a convergence of tourism and agriculture2. health and wellness, which includes not only hospitals and medical offices but also health clubs and recreation

3. professional/innovative services, which includes things like marketing, architecture and engineeringHealth care accounts for 14 percent of local jobs, thanks to an aging population and a growing interest in preventive health care.92 percent of businesses are locally owned and employ 72 percent of workers.

"The wine industry has issued predictions that the 2005 harvest looks good from a volume and quality standpoint. However, the 2002 and 2003 harvests are now the focus of this industry, and global competition continues to rise. Export opportunities do exist in the wine industry and are likely to continue through 2006"

"The employment forecasts are lower than past forecasts. Specific local industries that seem poised for growth are tourism due to the dollar’s continued relative weakness and predicted national economic growth.""Help wanted ads have decreased since mid 2005, which signals a slowdown in hiring. Sonoma County experienced slow job growth throughout 2005, gaining only about 600 jobs in net, with the unemployment rate at 4.2% as of November 2005."Local economic leaders are betting on high-tech -- specifically, the county's burgeoning medical instrument industry -- to lead the way out of the doldrums. But the odds are long, and even if the biotech industry does take off, it's unlikely to reach the peaks of the telecom boom of the late 1990s.With most of Sonoma County's high-tech manufacturing jobs either lost due to recession or shipped overseas to cheaper labor markets, Steve Cochrane of Economy.com in Westchester, Pa., who monitors the Sonoma County economy and other economists said the county won't see a significant increase in high-tech hiring this year."The biggest problem is the fact that there is no direction to our economy," said Robert Eyler, director of the Sonoma State University Center for Regional Economic Analysis. "There is no outstanding industry that has stepped forward to drive our economy. "The fact that the economy has shifted away from technology (including telecom and high-tech manufacturing) is no surprise to the thousands of people who have been laid off."

The unemployment rate will drop to 3.7 percent in 2006, from 3.8 percent in 2005. During the height of the dot-com boom, unemployment was 3.3 percent, before climbing to a high of 5.4 percent in 2003.

The challenge will be finding workers to fill new jobs and to replace retiring baby boomers (According to Supervisor Paul Kelly 10 percent of the county of Sonoma's work force has recently retired).

"Sonoma County must be sure to seize opportunities that appear. Government jobs were stagnant in 2005 and are likely to do the same in 2006."

The county will add about 1,900 jobs this year, a 1 percent increase. That's not a lot of growth, but still an improvement over last year, when the county added only 1,000 jobs for a 0.5 percent increase.

Adjusted for inflation, per-capita income will increase 1.9 percent, to $29,113. Per-capita income fell 2.6 percent in 2005.Retail sales will climb 2.9 percent, after falling 0.4 percent in 2005. The data is vaguely positive, Eyler pointed out, but nothing to get excited about. In general, the forecasts are less optimistic than what Eyler had predicted for 2006 last year.

The ongoing war in Iraq, the national and state deficits, and continually rising fuel prices are all factors that held back the local and national economies last year and will continue to apply pressure this year.

Plus there's the housing market, which is arguably headed into a slump, Eyler said. "One of the major concerns in 2006 is the local housing market. With rising interest rates, slow growth in personal income, and general uncertainty about fuel prices and labor markets, not much good news exists currently for local real estate."

Housing prices have dropped in three of the past four months, and sales were the lowest in four years. Added volatility comes from interest rates that have finally started to rise, and the fact that fuel prices are starting off at a higher level this January than they were last year -- and are only going to climb."Gas prices rising caused an increase in the price of primary products, such as lumber, rock, cement, etc. Local building permits surged at the end of 2005, but with rising interest rates likely in 2006, this trend is unlikely to continue. Default notices are rising, signaling business instability and consumer insolvency. As interest rates rise, and there are conversions from adjustable rate mortgages to fixed, defaults are likely to rise."

Eyler says housing prices could fall 10 percent to 15 percent this year in Sonoma County as interest rates continue to rise and consumers lose confidence in an economic recovery. Local real estate agents and other economists, however, have predicted prices will stabilize and won't climb quite as fast as they have in the past two years.That said, most economists agree the Sonoma County housing market is overpriced and headed for at least a small downturn to bring prices to a more reasonable level. The outcome, Eyler said, could either lead to more buying from outside the county -- for example, Baby Boomers looking for retirement homes -- or make prices more affordable for local residents who have been priced out of the market so far.

"In the long-term sense, it's better for the housing market to tumble because it's overpriced," he said. If prices do fall, even if it's only for a fairly short period of time, that could have an immediate impact beyond just the housing industry. Construction jobs could fall off, and if homeowners are concerned about their largest asset losing value, they might spend less, affecting everything from retail sales to the high-tech industry.

"For the real estate markets, 2006 looks like an interesting year. However, it is a mistake to watch the housing market alone as an indicator of local economic growth or recession. The housing market should lag behind the economy, not drive it."However, there are three issues that 2006 should resolve for this market. "First, as prices continue to fall, it will be a test of external demand for Sonoma County housing.If this is truly a desirable place to live for reasons beyond the local job market and income-making opportunities local real estate may find support from the outside if current residents begin to sell off." "Second, the extent to which current Sonoma County homeowners have leveraged themselves should become apparent as interest rates rise. This may happen either as household predictions of higher mortgage rates, or a forced change in mortgage costs based on the transition from a low fixed interest rate to higher, adjustable rates. This may lead to a real estate sell-off that begins to look like a real estate bubble and initiates the test mentioned above." "Finally, a slowdown in local retail sales may precede any real estate sell off.""The outlook for 2006 is mixed for Sonoma County, as we continue strolling along a thin line between growth and recession."

Where The Jobs Aren't...More on the Sonoma County Forecast 2006:

Stayin' AliveIt's time to loosen the tourniquet. The bleeding has stopped. With unemployment in the North Bay at its lowest point since 2001, staffing executives in Marin, Sonoma and Napa say 2005 was a banner year for job seekers - by far the best jobs climate since the calendar flipped its pages to the 21st century (not that that's saying much). But hold the champagne and don't set off the celebratory fireworks quite yet. With apologies to the rock group Timbuk 3, while things are looking up, "the future is not so bright that you're gonna have to wear shades."First of all, high-paying jobs are not plentiful, and many of the new jobs pay less than the average wage. Second, there is a disparity between the competency of the available workforce and the specific skills required for many of the new jobs. And finally, the economy is not firing on all cylinders yet and may suffer temporary setbacks, according to a report prepared for the Sonoma County Economic Development Board by Economy.com. In short, it isn't the best of times, but it certainly isn't the worst of times either.

"We won't see 1999 or 2000 again," says Ben Stone, executive director of the Sonoma County Economic Development Board, referring to an era of nearly full employment and top-dollar salaries. "That was a unique confluence of events that created a level of prosperity that wasn't based in reality and certainly wasn't sustainable…"

Marin and Sonoma, more so than Napa, have economies that depend on a healthy technology sector. When the tech bubble burst, the Bay Area, according to a study by the San Francisco Chronicle, lost more than 400,000 jobs from 2001 to 2003. In Marin, the unemployment rate doubled - from 1.5 percent to 3 percent. Meanwhile, telecom-centric Sonoma County lost jobs faster than a game of dominoes. Even today, after a modest tech rebound, the county still has 6,500 fewer jobs than it did in 2001, according to the California Employment Development Department (CEDD). And roughly one-third of the higher-paying tech jobs that existed in 2001 have sailed offshore to cheaper labor pools.

The poor get poorer…In a sense, the story of the North Bay job rebound is a classic example of the rich get richer and the poor get poorer. An analysis of state job and wage reports by the Santa Rosa Press Democrat in September, using figures through March of 2005, found that wages for many workers at the higher end of the pay scale are rising, but those on the low end are falling further behind and are not even keeping up with inflation.

Average California wages, adjusted for inflation, fell 0.7 percent in 2005, according to the CEDD. That drop followed a decline of 0.5 percent the year before. In Sonoma County, the average wage is $42,171, but the Press Democrat study found that 58 percent of the new jobs created between 2003 and 2005 paid below the average wage.

Jerry Dunn, director of the Sonoma County Human Services Department Employment and Training Division, says the county's dislocated worker program has been able to place 88 percent of workers who completed special training programs to teach them new job skills. On average, however, those workers are earning 25 percent less in their new positions, Dunn says. Displaced tech workers are among the hardest hit. Even though it has been five years since the massive layoffs started, many of those left in the wake of the storm have yet to regain their previous wage footing, and it's common belief among many - whether they be headhunters or job seekers - that they never will.

"Technical skills are not as needed as they once were because those jobs have shifted offshore," says Jennifer Vidkjer, vice president of sales and marketing for Alkar, a full-service human resources agency serving Sonoma, Napa and Solano counties. "What we're seeing is more research and development work in the U.S. while technical execution is being sent overseas because of the cost. Many of the positions we are filling are actually requiring softer management skills with an emphasis on critical thinking and communication."

Tech workers and their families, who wanted to stay in the North Bay because of their ties to the community, have had to face the reality that those jobs are gone, and much like Bruce Springsteen sings, "they're not coming back."

"They've adjusted," says Carolyn Silvestri, founder of The Personnel Perspective, a human resources consulting, training and recruiting firm based in Santa Rosa. "They have decided what they need to do in their lives in order to stay. Many of them have taken lower-paying jobs that they enjoy and that utilize their skills while keeping their eyes and ears open for new opportunities."

Silvestri points out that many of the people who worked at the larger tech companies - Hewlett-Packard, Agilent and JDS Uniphase, for example - were long-term employees, who spent 10, 12, 15 years or more with the same company.

"They formed allegiances and alliances, and they are networking and helping each other out," she explains. "These are well-trained, entrepreneurial and creative people who didn't want to take the first thing that came along. Many are consulting on an independent basis in the area, and they are very receptive to getting calls from each other to find opportunities. It must be working because they seem to be paying their bills and making ends meet."

Baez says her firm placed several tech refugees through temporary or "temp-to-hire" positions with reasonable success in securing decent salaries. "These were flexible and open-minded people who got actual on-the-job experience and fit right in," she says. "Over time, many of them have told me it was actually a great experience in the end. What started out as something really awful turned out to be the best thing that could have happened for some of them."

One of the programs with considerable success in helping tech workers regroup and redeploy is Job Link, funded by the Sonoma County Human Services Department Employment and Training Division. It consists of two offices - a Job Seekers Center located at 2245 Challenger Way in Santa Rosa and an Employer Resource Center at 606 Healdsburg Avenue in Healdsburg. Much like a library, Job Link is open to anyone in the county. Its manager, Kathy Young, estimates 30,000 workers have used the Job Seekers Center over the past five years. And while the numbers have slowed somewhat, "We still have lots of people coming in," she says.

Three of Job Link's most successful programs have directed former tech workers toward human services work. These include a Caregiver Training Program, which enabled people to find nursing assistant positions; a Nurse Workforce Initiative, which has licensed more than 100 new nurses; and a "Tech to Teach" program that took laid-off tech workers and trained them to be teachers in math, science and related subjects.

The new job landscapeAs the economy slowly rebounds and companies venture forth into a hiring mode, staffing executives are optimistic about prospects in the North Bay but with one caveat: finding the talent to fill the jobs.

"We have well-paying jobs out there," says Mark Nelson, president of the Nelson Family of Companies, which owns Nelson Staffing Solutions in San Rafael and other locations throughout Northern California. "But what's happening right now is that there is a significant disparity between the talent required for many jobs and the skill set of those currently seeking work. That's not to say these people aren't talented - they are. But the specific talent required for many positions and the talent available are not one and the same. Finding the right talent is very difficult and getting more pronounced each year because greater numbers of Baby Boomers are retiring, and we, in the United States, are not creating the appropriate numbers of skill-ready college graduates."

Particularly unsettling to Nelson is the dearth of technologists (computer programmers, software engineers, network administrators, accountants, etc.) with skill sets to handle today's jobs. "We may be graduating smarter and more educated people, but they are not skill- and work-ready for the types of positions that businesses are demanding," he says. "In 1975, the United States was the No. 1 country in the world in producing the best-trained science and engineering graduates. Thirty years later, we're projected to land south of fifteenth on the list. And that's a problem."

Neil Kreuzberger, president of Kreuzberger Associates in San Rafael, an executive search and contract staffing firm that specializes in filling high-level finance and accounting positions, also sees a gap in the availability of worker expertise and job requirements, and he is once again feeling the supply side of labor tightening up.

The strong demand for experienced people with Sarbanes-Oxley knowledge and the overall high demand for employees in the financial and accounting sector is actually bringing back something that placement executives haven't seen in a long time-signing bonuses. "I'm seeing people get multiple job offers and signing bonuses," says Kreuzberger.

"In our niche, companies held back on hiring full-time and contract workers for so long during the economic downturn that they built up a backlog of project work. As they came out of the downturn, they released the brakes, but at the same time, the supply side tightened up as many of the workers had been absorbed into the marketplace. It's not quite like it was in the late '90s when it was incredibly difficult to find people, but it's close. It's getting challenging again to find good people."

Kreuzberger and other staffing executives also point out that employers are very demanding, wanting a perfect match between the job requirements and the worker's expertise. "It's a market where they are looking for a Perfect 10," he says. "That doesn't make things any easier."

Vidkjer believes employers are demanding more quality because the scope of work has been expanded. "When the companies downsized, it didn't eliminate their needs or their business. Work still needed to be done, but middle management took a big hit. Now, when companies hire, they are asking people to take on more duties, and it takes a certain person to manage it in a healthy, positive way. Companies want to be absolutely sure they've got the right person. They want people who can deliver positive results and leaders who can motivate," she says.

Growing opportunitiesIn addition to the growth in specialized tech, finance and accounting, placement agencies are seeing increased demand for new employees in the wine and food industries and continued demand in the medical sector. Having the name Napa or Sonoma on a label is a major selling point for a product, whether it be wine or food, according to Silvestri, and after several years of consolidation, the wine industry is starting to breathe again. "The internal marketing and public relations positions were hard hit in the consolidations," says Silvestri. "We're still not seeing growth there, but we are getting lots of requests for national sales managers, finance personnel, people with general management skills and visitor center managers."

"The wine business is booming," echoes Vidkjer. "We're seeing more demand for winery workers across the board."

Meanwhile, the food industry "continues to blossom," says Silvestri. Adecco's Baez agrees with Silvestri's observation. "Fairfield, American Canyon and Napa are on fire with manufacturing jobs - food, in particular," she says. "It's very exciting, and the salaries are good."

It's the economy, stupid.While hiring seems to have gotten a green light, experts still believe most North Bay firms will proceed with caution into the new year. The reason is the fluctuating economy. A fairly bright outlook last summer from Economy.com described the economy as "expanding, with moderate growth in employment and industrial production." That same study three months later noted that growth had slowed and predicted the area's economy likely would lag that of the U.S. through the middle of 2006.

In the Fall 2005 Local Economic Report, Steve Cochrane, managing director of Economy.com, wrote that leading indicators were giving off "mixed signals." For example, Cochrane's analysis showed that employment is essentially unchanged from a year ago even though industrial production in the area is rising. And while some firms, like Boston Science, Alcatel and Medtronic are hiring people for research and development positions in the tech sector, Agilent shipped 300 jobs overseas just in the third quarter.

Cochrane's study indicates that income growth will exceed 5 percent for the first time since 2001, which he believes will revive demand for retailing, particularly for high-end retailers that are currently not in plentiful supply. Over at Sonoma County's Job Link, however, Young noticed a drop-off in retail hiring for this past holiday season. "They definitely did not hire in the same numbers they have in the past," she says. "That signals to me that there still is some apprehension out there. Back in April, May and June, we had lots of placements in retail. Since then, I've seen a definite slowdown."

Economic gurus worry that the impact of Hurricanes Katrina and Rita on the nation's energy supply will continue to ravage consumers' budgets. Cochrane writes that this could negatively impact the North Bay's travel and tourism industries - and conceivably could hurt local wineries that produce lower-priced wines because demand for wine could be diminished by the loss of disposable income once consumers pay their higher energy bills. Higher-priced wines would not be impacted as much, he writes, because the people who buy them generally have more disposable income and are not equally impacted by higher energy costs.

In his Fall 2005 economic outlook, Dr. Robert Eyler, chairman of the Economics Department at Sonoma State University, says the local economy is in a "tug-of-war," with local forces moving forward while state and national forces are trying to pull it toward stagnation.

While he agrees that oil prices play an important role in everyone's economic life, he writes that "we cannot make trends in gas prices the culpable party for all economic woes," pointing out that in past eras, consumer behavior has continued unabated without parallel income growth during times of rising gas prices.

Eyler also is concerned about local real estate prices, which he predicts will contract somewhat if the Federal Reserve continues to increase interest rates and general economic uncertainty rises. People "falsely watch home prices as an indicator that the economy is going to be okay," he writes in the report. "Our local high-tech industries, especially biotechnology, and the wine industry are poised to continue growing. Watching their hiring and their trends will tell you more about this economy than any other indicator. Their hiring reflects their forecasts of demand for their goods and services, and the more they hire, the more they intend to produce in the future. While our financial markets trends do not reflect much confidence in the economy, these hiring trends will show confidence or not."

Reflecting on the economy, Jerry Dunn of the Sonoma County Human Services Department Employment and Training Division cites the inevitable - ebb and flow, yin and yang, coming and going.

"To be certain, it's not all hearts and flowers out there," says Dunn. "But one of our strengths is our diversity. We have tourism, we have agriculture, we have a strong health care industry, growing construction and emerging biotech. When one thing leaves, other things come in to fill the gaps. We're diversified, and we have a balanced workforce. Are the jobs coming in paying as well as the jobs going out? No, they're probably not. But by the same token, the economy just keeps going."

"Hedge-fund manager David Einhorn has a prediction about publicly traded home builders: "Slowing orders, reduced prices, reduced margins, slowing backlogs -- it's all going to come."And he's one of the bulls. Could it simultaneously be true that there is a housing bubble and that home builders are undervalued?

Housing-price gains have been huge and mortgage-lending practices lax. The washout was bound to come, and now it looks like it may have started. Investors are beginning to panic. Toll Brothers, once the most admired home builder, warned in recent weeks that sales would disappoint. The stock is down almost 50 percent from its peak. KB Home has warned about cancellations and falling orders. That stock is off 25 percent from its top.

More warnings are sure to come. And the next stage could be big price cuts to move product. Credit Suisse analyst Ivy Zelman, a longtime bear who is finally achieving a measure of vindication, says that Centex is already running sales in select markets.

"Depending on where the builder builds ... a great tailwind now becomes a major headwind. It was a great ride up but it could be an ugly ride down," said Zelman.

Home builders' shares as a group are now trading at six times projected per-share earnings. That means only one thing -- the market doesn't believe the earnings. And at the heart of it, they fear builder bankruptcies, as happened in the early 1990s. "If you talk to a hedge-fund manager, (the home builders) are going from 50 percent growth to 20 percent to down 50 percent. It's totally manic-depressive behavior," said Margaret Whelan, an analyst for UBS who has a far less gloomy view herself.

"For five years, we've been waiting to see how bad it's going to get. It's honest now. We are going to find out whether bears are right and there's no business at the bottom, or I am right and there's a good business and good earnings at the bottom," said Einhorn, who runs Greenlight Capital, a hedge fund with more than $2 billion under management.

How bad is it going to get? Zelman sees a substantial profit squeeze coming. Over the past year, home-builder operating-profit margins were around 17 percent; she said she thinks those margins will fall in the next three years and eventually return to a more typical 10 percent."From Elsewhere:

"Christopher Thornberg, an economist with the UCLA Anderson Forecast, who previously described the real estate market as a bubble, warned that the real estate market is slowing down. He stated in a meeting with business leaders that the real estate market has peaked. “And beyond that is a downhill run.” He estimated that house prices in California are 30 to 40 percent overvalued."Economic investment drives the business cycle, and a third of investment is related to real estate. As construction declines, workers in that industry as well as complementary fields such as real estate finance lose their jobs. Homeowners will stop borrowing on the equity of their real estate. Their demand for goods declines, reducing profits in the rest of the economy. The reduction in investment and consumption eventually brings down total output, and the recession then strains the banking system as homeowners walk away from their loans.The real estate boom was unsustainable because mortgage payments come out of wages. Productivity has been growing, but the extra income is not going to wages.From CNN's 101 dumbest moments in business: Real estate

"67. Can't keep up with the Joneses? Heck, it's bad enough just trying to keep up with the appreciation on their dilapidated Victorians.In March the median price of a single-family detached home in the San Francisco Bay Area rises more than $1,000 per day. By month's end, it swells to $106,000 above the previous year's median -- 43 percent more than the area's estimated average household income of about $74,000."

"100. Bubble? What bubble? Oh ... that bubble.In May an Experian-Gallup national survey finds that 65 percent of Americans haven't heard anything about a possible "housing bubble." Another 12 percent have heard "only a little." Indeed, 70 percent expect home prices to keep rising, while only 5 percent think they'll slip. However, when the facets of a housing bubble are described to them, about 40 percent go on to say that the scenario is likely to occur in their area in the next three years."

Tuesday, February 21, 2006

Housing Bubble = Foreclosure Exposure

Yes, Virginia, There Is A Housing Bubble!By Bruce CollinsFebruary 21, 2006 A lot of economists, realtors and CNBC pundits have weighed in on their opinion of the housing bubble. Here is why I believe there IS a bubble:

1. Creative lending practices - Today, creative lending practices have allowed people to buy homes for No Money Down, Interest Only and Adjustable Rates. The fact that so many people, who SHOULDN’T be purchasing homes, are scooping them up should be a major concern. In high priced areas such as Northern California, half of all new home purchases are done with adjustable rates. Considering that the Fed doesn't seem ready to stop raising the rates any time soon, this doesn't seem to bode well.

2. America’s savings rate - The average American’s savings has dropped to zero. This is a catastrophe waiting to happen.

3. Homes as investments - 30% of all homes being purchased now are for investment purposes, not living purposes. Have you noticed that the homebuilder's stocks are falling? It seems that as they are 'peaking' in housing starts, less homes are being purchased. Therefore, the inventory of new homes is steadily rising. This is all part of the nasty spiral. We haven’t even touched on people who have used their homes as ATMs in the form of home equity loans to buy luxuries. Consumers, like the government, are over-extended in a sea of credit. We seem to be lulled into a belief that homes never depreciate, which is simply not true. If you look at history, there have been major downturns in the housing market worldwide.Taking these three factors into account and adding to it a strong possibility of a slowing economy and that spells disaster for the mortgage and banking industry. This might explain why the government passed new bankruptcy laws. No doubt they see it too.A good book on this subject is by John Rubino, called "How To Profit From The Coming Real Estate Bust". His website is http://www.dollarcollapse.com/. Good luck.

"Stocks are holding at their 1997 levels. Houses are at least twice as high. But house prices seem on the verge of tumbling. In the 1990s, houses in the Los Angeles area fell nearly 30% when the aerospace industry went into a slump. People lost jobs; house prices fell. The downturn was cushioned by falling interest rates - especially after the dot.com bubble collapsed.

We have full employment - albeit at low wages - but interest rates are not falling, they're rising. Consumers are spending twice as much on housing. One out of every five homeowners in California spends more than half his income on housing. The typical mortgage in the Bay Area is - more than twice the typical rent of $1,324.

What will happen when the cycle turns and the ATM machine stops working in the bedroom? Will they drop their houses like dotcoms? Will the marginal buyers go back to renting? Speculators could get hit hard; house prices might drop 30% or more...and stay down.Watch out, dear reader. Watch out - and prepare."

In Other News...

Inman News has the January foreclosure numbers. "About 103,540 properties nationwide entered some stage of foreclosure in January, a 27 percent increase from the previous month and a 45 percent increase from January 2005, according to RealtyTrac. 'This is the first time since we introduced the report in January of 2005 that we've seen back-to-back months with increases of more than 20 percent,' said James J. Saccacio."

"'While some of this might have to do with the seasonality of normal real estate cycles, it appears that rising interest rates and softening home prices are beginning to push foreclosure inventories closer to the historic average of 1 percent of all U.S. households,' he said."

"California registered a foreclosure rate below the national average despite documenting the third-most new foreclosures of any state. The state reported 9,354 properties entering some stage of foreclosure, a 22 percent increase from the previous month and a 62 percent year-over-year increase."

From Inman News. "Defaults on ARMs could result in $110 billion in losses nationwide over the next five years, an enormous-sounding number that still comprises less than 1 percent of the home loans sold since 2004, according to Christopher Cagan."

"'It's unpleasant, but it will not break the economy or the real estate market,' said Cagan, who studied valuations and mortgage debt for more than 26 million residences in a valuation database across 558 counties in 36 states and the District of Columbia, representing more than 60 percent of the nation's population. This is because loan losses will be spread out over the next four to six years, as not all distressed borrowers will find themselves in trouble at the same time, Cagan, an analyst with First American, said.""Cagan agrees that loan delinquencies will go up. 'There will be four times more foreclosures than now. That we know,' the analyst said. But, because the delinquencies will be a 'time release' over the next four to five years, the economy will be able to weather the problems, Cagan said."

"Cagan noted that the market is already starting to impose limits in this area, with some Wall Street investors tightening up standards and refusing to pay as much for bundles of loans that are risky. 'Throughout human history there has always been a war going on somewhere. It doesn't affect most people. But if, say, you're an individual who bought with one of those teaser loans, or a broker who specializes in those loans, or an investor who bought them, you're in the war zone,' Cagan said.""'You don't want to be the person who gets hit with it, but it's not going to break the country,' Cagan said."